Alaskans this week will start receiving their $3,284 payout from the state treasury, a combination of a large Permanent Fund dividend ($2,622) and a one-time bonus ($662) to help people pay higher energy costs.
The payment is almost triple the size of last year’s dividend.
Two reasons for the generosity: This is an election year, and oil prices for the state fiscal year that ended June 30 were almost 70% higher than the previous year, generating more than $2 billion in additional dollars for the state general fund. That fund pays for schools, roads, airports, the university, state troopers and courts — and the annual dividend.
It’s important as Alaskans receive this month’s $3,284 payout that they understand it’s all one checkbook. Spend a dollar more on the dividend and something or someone else gives up that dollar. And while available Permanent Fund earnings over time should hold pretty stable, averaging out between good and bad investment years, oil revenues to the state general fund can bounce wildly between fat and lean based on world politics, the economy and factors far, far outside of Alaska’s control.
And though Alaska cannot control oil markets, it has to deal with the consequences when those prices head down.
This fall’s $3,284 payout totals almost $2.1 billion — by far the single largest expenditure in this year’s state budget. Legislators approved that spending plan, and the governor signed the budget, when a barrel of Alaska North Slope crude was selling in the $110s this spring, as high as $127.77 on June 8. Fears of deep cuts to Russian oil production and global market turmoil drove up prices.
Then it all changed. Russia has been able to maintain production. Meanwhile, global demand is weaker than expected as recession fears loom.
Alaska crude ended last week at $96.27, after dropping under $92 a barrel on Sept. 7, a fall of 25% from the peak just three months earlier.
No one knows the price of oil in the future, but investors bet on it in publicly traded markets. Those futures prices look to be in the low $90s in the current fiscal year, sliding into the mid-$80s the next year as investors worry about falling demand for crude amid the risk of a global recession.
This year’s state budget can afford to write those $3,284 checks to Alaskans and pay for everything else so long as oil averages $87 or better for the entire fiscal year. Anything below $87 would leave a budget hole. That would require a three-quarters vote of both the House and Senate when they convene in January to once again draw from the state’s budget reserve fund, which held just $1 billon as of Aug. 31, to cover the immediate deficit.
Which means for the next year, if oil stays in the $80s, or below, something has to give. Either school funding and public services, or new taxes, or a smaller dividend. It’s just math.
— Wrangell Sentinel
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